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17 March 2024

Boeing’s Fall from Grace…And the Sky


By Adrian Colarusso, CFA, CFP®

March 17, 2024

Good grief, Boeing.

On Monday, news hit that a Boeing plane spontaneously nosedived in midair over Australia, throwing passengers into the ceiling and injuring 50 people. The investigation is ongoing. The cause was likely a crew member’s error, but the public relations nightmare for Boeing continues nonetheless.

The nosedive follows the infamous January 5th incident, where a Boeing fuselage panel blew off mid-flight, terrifying passengers on board and prompting an emergency landing.

And don’t forget the fatal March 2019 crashof the Boeing 737 Max and subsequent worldwide grounding of the aircraft model.

When we thought the news couldn’t get uglier, on Tuesday, news outlets reported that the former Boeing quality control manager who whistle blew about safety issues was found dead.

Another example of the potency of single stock risk

If you’ve been reading our newsletters, you know where this is going.

Sometimes, single stock risk pays off, like in the case of Nvidia. Other times, concentrated investors suffer the sneaky riskof quiet but chronic underperformance. Then there’s the risk of catastrophic loss.

There’s a meme circulating that criticizes Boeing – and even capitalism itself – for an excessive focus on “shareholder value” as an explanation for these egregious violations of customer safety.

This indictment doesn’t hold water. Boeing’s mishaps have destroyed shareholder value.

Boeing’s stock is down almost 30% this year, and almost 50% over the last five years. Check out the charts below to see how this compares to the S&P 500 and European rival Airbus.

Boeing stock has suffered year-to-date, to rival Airbus’ benefit

Source: Y Charts, as of 3/13/24

Boeing stock has lost half its value in five years, while the S&P 500 doubled.

 

Source: Y Charts, as of 3/13/24

The company’s ESG ratingis “high risk”, which may reflect its culture of unsustainable carelessness toward broader stakeholders. Myopic corner-cutting is a material investment risk for long-term shareholders indeed.

What’s the lesson for investors?

A few lessons here:

  • Single stock risk is extremely potent. For most investors, diversified portfolios provide a better risk-adjusted return experience.
  • Executives at Boeing might be facing job insecurity at the same time their stock is down – a compounded risk. They might regret holding onto vested stock they could have sold.
  • These company-specific catastrophic loss events are hard to predict. One might have believed with air travel roaring back after the pandemic, an aircraft manufacturer might have been a good buy. Not so, in this case.
  • A company’s ESG rating can indicate material investment risk for long-term shareholders
  • US-only investors may have missed the diversification benefits of owning the other party to this duopoly, European-based Airbus.
  • As always, there’s a bull case and a bear case from here. Will Boeing successfully turn its culture around and regain the public’s trust, making today’s low stock prices look like a bargain in hindsight? Or are there more skeletons in the closet that could send it down further? What’s your guess? If you know, please don’t share material non-public information.

How we can help

Along with holistic wealth advisory and investment management services, we work with our clients to migrate them from positions of concentrated risks to sensible diversification in their wealth pictures. Importantly, we take extra special care to do so as tax-efficiently as possible.

Set up some time if you need help navigating the intersection between taxes and the risk of your stock nosediving out of the blue.